EBay Hangs Up On Skype, Sells 65 Percent To Private Investors


Private equity firm Silver Lake, owners of Avaya and a host of other high-tech companies, is the lead investor along with Index Ventures, an original Skype investor; and Netscape co-founder Marc Andreessen's investment firm Andreessen Horowitz; and the Canada Pension Plan Investment Board.

The deal values Skype, which recently reached more than 400 million subscribers globally, at $2.75 billion.

Launched in 2004, Skype helps consumers and businesses make video and voice calls, along with sending instant messages and share files. Skype's service is free between Skype users and also offers lower-cost calls to landlines and mobile phones.

"We are extremely fortunate to have such a talented and seasoned group invest in our company," said Josh Silverman, Skype CEO, in a statement. "This is a group of investors and industry veterans that have a strong track record of taking the technology companies they own to the next level. With their knowhow helping to guide our vision, Skype is poised to enter the next phase of its growth and development."

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EBay bought Skype for $2.6 billion and other considerations in 2005 for a total of roughly $3.3 billion. At the time, eBay failed to gain the rights to certain aspects of Skype software and the founders recently started litigation against eBay. The software in question was peer-to-peer software owned by Joltid, a firm controlled by Skype's founders. The Joltid litigation thwarted eBay from conducting an IPO for Skype. In a filing with the Securities and Exchange Commission, eBay said the IPO "would be severely and adversely affected" and continued operation of Skype's business would not be possible. An acquisition of Skype eliminates eBay's need to conduct an IPO.

Skype has become a start-up Cinderella story of sorts, growing dramatically in a short period of time. Skype generated $551 million in revenue in 2008, a 44 percent jump from the year before. At the same time, Skype grew its user base 47 percent from 2007, ending 2008 with more than 400 million users. EBay has estimated that Skype revenue would exceed $1 billion by 2011.

Along with attracting a massive number of consumers, Skype has also managed to build out its business presence. In a keynote presentation at Interop Las Vegas 2009, Skype General Manager and Vice President Stefan Oberg said Skype is a prime example of the "commercialization of IT" and that Skype has been shaking its consumer-only perception. At the time, Oberg said roughly 35 percent of Skype's 443 million users are business users; 20 percent use video for business purposes; 95 percent are saving money over their traditional phone systems; 80 percent see productivity gains; and 70 percent use it while traveling for business.

The company also offers corporate tools like Skype for SIP and Skype for Asterisk, which leverage corporate VoIP systems to enable companies to make and receive free and low-cost Skype calls. Skype is also available on a host of smartphones, with applications available for BlackBerry devices from Research In Motion (RIM) and the Apple iPhone and a built-in Skype capability on some Nokia devices.

Skype has gained so much traction in the business world that Oberg said the company will build its own channel program to offer enhanced services like support, integration with third-party applications and interoperability through partners.

"It used to be that anything Web-based wasn't considered business-grade," Oberg said during his May keynote, adding that consumer technologies are now getting robust enough to be deployed in business settings. "It's moving from individual adoption to business adoption."

Silver Lake's Managing Director Egon Durban agreed that Skype is making business inroads, which is part of the catalyst for the investors' purchase of the majority of eBay's stake.

"Skype Technologies is an innovative, next-generation technology company that has changed how people and businesses communicate with each other," Durban said in a statement.

And, according to eBay CEO John Donahue, the sale will fuel Skype's growth.

"For eBay, this transaction allows us to unlock both immediate and longterm value while benefiting from talented partners to help Skype accelerate its growth momentum," Donahue said in a statement.